Emeco Holdings (EHL)

Deutsche Bank has upgraded
Emeco Holdings
from “hold" to “buy," but slashed its 12 month price target by 30.9 per cent to 76¢ a share after the company issued a profit warning.

Emeco’s trading update confirmed the tough trading environment in Australia, with guidance for first half 2013 net profit after tax (NPAT) of $23-$26 million representing a decline of 11 per cent to 21 per cent on the previous corresponding period.

The broker says that a sharp fall in Australian utilisation, down to 66 per cent from 76 per cent in August, drove the poor result. Particular weakness in the coal sector and the need to renew around 15 per cent of Emeco’s Australian fleet in 2013 means utilisation is likely to decrease further.

“The sudden deterioration in Emeco’s earnings reflects its role as a marginal supplier of equipment to the mining industry and production cuts by clients. Earnings fluctuations are an inherent part of Emeco’s business model, and while this pullback is severe, an improvement in conditions will see demand recover quickly."

Deutsche Bank is forecasting earnings per share of 8¢ in 2013, 9¢ in 2015 and 11¢ in 2015. Emeco reported EPS of 11¢ in 2012.